Shipowners shouldn’t assume today’s strong recycling market will last

Limited demolition supply and intense buyer competition have created one of the strongest ship recycling markets in years. Hitesh Vyas from Wirana Shipping reports. 

Shipowners are currently benefiting from one of the strongest recycling markets seen in recent years. Demand from cash buyers and recycling yards remains high, yet the supply of end-of-life vessels is unusually limited. That imbalance is creating attractive prices for owners ready to sell.

However, market windows may not stay open for long. Strong freight markets across much of the shipping industry continue to encourage owners to keep older vessels trading. Older tonnages in container ships, tankers and many dry bulk vessels are still generating returns that far outweigh demolition values, reducing the number of recycling candidates entering the market.

At the same time, cash buyers and recycling facilities are competing aggressively for the limited tonnage that is available. It has become very much a seller’s market. This means buyers are often acquiring vessels at prices that leave little, if any, commercial margin. From the outside, this may appear difficult to justify, but maintaining activity is about far more than the profitability of a single transaction.

Ship recycling facilities need a continuous flow of vessels to keep operations running efficiently. Experienced workforces cannot simply be switched on and off as market conditions change. Maintaining activity allows yards to retain skilled employees, continue training programmes and ensure operational standards remain high.

There is also an important commercial consideration. Shipowners understandably want confidence that the recycling facility they select is actively dismantling vessels and maintaining high standards. A ship recycling facility with a consistent operational track record inspires greater confidence than one that has been inactive for an extended period.

Those of us who have worked in ship recycling for many years know the market moves in cycles. Periods of constrained supply are inevitably followed by periods when significantly more tonnage becomes available.

Today, the market remains tight, but there are several factors that could quickly change the balance. A lasting resolution to the conflict in the Middle East and the safe reopening of Red Sea shipping routes would ease many of the disruptions that have supported freight markets. Likewise, any easing of sanctions on Iran could release additional vessels into the trading fleet and alter supply-demand dynamics. While the timing of either development remains uncertain, both have the potential to increase the number of vessels eventually heading for recycling.

That is why today’s market presents an opportunity for owners who are already considering the disposal of older tonnage.

This is particularly true for vessels that may become less attractive to buyers once recycling volumes increase. When supply eventually returns to more typical levels, recycling facilities will naturally become more selective. Owners who wait too long may find themselves negotiating in a much less favourable market.

For now, however, competition among buyers continues to support pricing despite softer steel markets in several recycling destinations. It is an unusual combination of market conditions that is working firmly in favour of shipowners. Markets rarely remain unbalanced indefinitely. The current shortage of recycling candidates has created one of the most favourable environments for sellers in recent years, but history suggests that conditions will eventually normalise.

For shipowners already weighing up whether to sell an ageing vessel, the question may not be whether this opportunity exists, but how long it will remain available.